By Ebrahim Fallahi

Caspian Sea legal regime: what it means for Iran’s oil and gas

August 15, 2018

After more than two decades of negotiations and diplomatic efforts in numerous summits, on August 12 a landmark convention was inked by the presidents of the five littoral Caspian nations – Russia, Iran, Kazakhstan, Azerbaijan and Turkmenistan on the legal status of the Caspian Sea during the 5th Caspian Summit in the Kazakh city of Aktau.

The convention is in fact a framework for sharing the world's 11th-largest drainage basin by area (over 3.5 million sq. km) which holds an estimated 48 billion barrels of oil and 8.7 trillion cubic meters of gas in proven or probable reserves according to the U.S. Energy Information Administration (EIA).

However, the signed agreement seems to be only covering “surface issues” and carving up the seabed resources [especially in the southern sector of the Caspian Sea] is still the subject of further negotiations since except for Iran the other four nations agree on dividing the basin by a line equidistant from the five coastlines.

Signing the legal status has significant implications for each one of the involving nations especially for Iran. Having the smallest coastline among the five Caspian nations, Iran has a lot to lose if the basin is divided based on coastline.

Caspian’s oil and gas reserves

As I mentioned before, the Caspian basin holds an estimated 48 billion barrels of oil and 8.7 trillion cubic meters of gas in proven or probable reserves, now let’s take a look at the share of each one of the littoral nations surrounding this rich body of water.

Having the longest coastline (about 1600 km) among the five countries, Kazakhstan holds the largest oil reserves in the Caspian Sea and is said to be the pioneer in recovering the basin oil reserves among the five Caspian Sea nations.

The 2018 British Petroleum (BP) Statistical Review of World Energy puts the country’s proven oil reserves at 3900 million tons while the figure for gas reserves stands at 1 trillion cubic meters.

Based on a 25-year plan, the country is seeking to attract $100 billion in foreign investment for its oil industry by 2025 and it expects $120 billion in oil revenue annually from 2021 to 2035.

Turkmenistan has 650 kilometers of coastline around the Caspian Sea and it is said to have the smallest share of oil reserves in the Caspian Sea compared to other five countries. However Turkmenistan’s share in the region holds significant gas reserves. The 2018 BP Statistical Review of World Energy indicated that Turkmenistan, as of the end of 2016, had 100 million tons of proven oil reserves and 17.5 trillion cubic meters of gas. The Asian nation is currently producing 261,000 barrels of oil and 66.8 billion cubic meters of gas annually. In Turkmenistan's 10-year economic and social development plan, special attention has been paid to the oil and gas sector.

In Azerbaijan, with 600 km of coastline in the Caspian Sea, oil is the main factor in the formulation of economic and foreign policy strategies. According to the 2018 BP Statistical Review of World Energy, the country holds 0.4 percent of the world’s total oil reserves and it is currently producing about 800,000 barrels of oil from several oilfields including Ashrafi, Azeri, Azeri–Chirag–Gunashli and Gunashli. Gas production also stands at around 17.5 billion cubic meters in this country.

BP, Chevron, Statoil, Eni, Total, INPEX, ExxonMobil and ONGC are among the most renowned energy giants which are currently developing Azerbaijan’s oil and gas industry at an outstanding pace.

Russia on the other hand, with 695 km of the Caspian coast, has some of the world’s largest oil and gas reserves in non-Caspian regions, and the country doesn’t seem to be very interested in extracting oil and gas from its Caspian resources anytime soon.

Russia currently accounts for about 14 percent of the global oil production and stands out as the world's second biggest oil exporter.

Iran’s oil and gas reserves in Caspian region

In 2002, Iran discovered a gas field in 700 meters water depth off the shore of the northern province of Gilan in the Caspian Sea and named it Sardar-e Jangal. The field contains total proven reserve of around 50 trillion cubic feet of natural gas that is 10 times more than Azerbaijan’s Shah-Deniz field.

This discovery came at a time when Iran’s share of Caspian gas was assumed to be 11 trillion cubic feet at its highest estimation.

Some 10 years later, exploration operation of Amir Kabir semi-submersible drilling rig (the largest offshore structure of the country with a weight of 14,700 tons) in the field led to discovery of an oil layer in 728 meters water depth in Sardar-e Jangal.

The field is estimated to hold two billion barrels of quality crude that is toxic hydrogen sulfide free of which 500 million barrels is thought to be recoverable.

Despite the above mentioned discoveries, Iran is not currently recovering any oil or gas from its Caspian resources, partly due to the high technology requirements of deep-water drilling and partly because, having gigantic easily-recoverable oil and gas reserves in the Persian Gulf and Southern regions, the nation does not feel the need to tap into its costly northern reserves.

Iran, Azerbaijan and the controversy

The mentioned Sardar-e Jangal gas field is currently a subject of dispute between Iran and Azerbaijan. According to Iran’s claimed 20 percent share of territory, the mentioned Sardar-e-Jangal field is placed in Iran’s share and Azerbaijan couldn’t have any claim on the field.

However based on some previously reached agreements between Russia and Kazakhstan on dividing the basin by a line equidistant from the five coastlines, Azerbaijan claims that Sardar-e-Jangal is a shared field.

The solution for this issue seemed to lie in the legal status of the Caspian, a document which could clear the share of each nation from the basin’s mineral resources.
The result is, however, not that satisfactory, since the signed agreement does not cover this subject at all.

Apparently signing the legal status too, has not resolved any issue in this regard and Iran is yet to insist on its legal right on Sardar-e-Jangal field.

EF/MA

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